Equifax Clears Q4 Earnings Bar Despite More Bad News

Equifax released earnings late Thursday, the same day that it said 2.4 million more individuals in the US fell victim to the infamous 2017 hack. The numbers were, well, decent against a backdrop of negativity, as the company beat top and bottom lines. But the real test will be management commentary on the March 2nd earnings conference call.

Equifax’s fourth quarter report beat expectations – but aside from headline numbers, the commentary from management was scant, and bated breath might be held ahead of Friday’s earnings call, when some larger issues are sure to be addressed.

Thursday was the same day the company said that more individuals in the United States were hit by last year’s data breach than had been initially estimated.

The latest tally comes to 147.9 million, up 2.4 million. That’s a lot of compromised data, of course. And Equifax has taken steps to stanch some of the bleeding of personal information – you know, the kind for sale on the Dark Web – by forging new pacts focused on identity verification.

The latest, upward revision to the number of people impacted by the breach came separately from the earnings announcement, which came after the end of the trading day. Investigations continue, said the company. And in terms of the data that was taken, hackers accessed driver’s license data but not Social Security numbers.

The credit scorer is likely to be scored on some of its own metrics, which come almost six months after first reporting the breach.

Revenues were $838.5 million, up from $801 million last year, and besting the consensus of $825.7 million.

Earnings on an adjusted basis, stripping out the impact of the data breach, were $1.42, compared to the $1.35 estimate.

It could be said, arguably, that the Street was nonplussed, given the fact that on heels of the announcement – and the beat – the stock barely budged, at $111.50. Friday, the shares were up intraday by about four percent.

It should be noted, too, that what was stripped out of those adjusted numbers, of course, was, and is, the costs related to the breach, spanning identity theft protection and credit monitoring.

But the residue of at least some of those efforts showed through on the legal and professional services line, which tallied $26.5 million in the fourth quarter and $114 million in the 2017 year, numbers that are net of insurance recovery.

In the release that came alongside earnings, Paulino Barros, who serves as interim chief executive officer at the company, said that “our fourth quarter results underscore solid progress on multiple fronts. We invested heavily in advancing our data security infrastructure and improving our consumer support and we delivered on our financial commitments.”

There was a nod by the executive as to what lies ahead – likely to be colored by Friday morning’s upcoming call.

“There will be a lot of heavy lifting in 2018 and 2019 as we implement new data security initiatives and restore confidence in our customers and consumers,” said the CEO. “The DNA of this company is underpinned with both a deep commitment to strong ethical principles and values and a strong focus on execution.”

Broken down by segment, the U.S. Information Services segment (USIS) saw fourth quarter revenues of $313 million, off 1 percent from a year ago. Separately, online information solutions saw revenue of $210.9 million, flat from last year.

Mortgage solutions revenue was $32.8 million, off 9 percent from last year.

One bright spot seemed to be international revenues, where growth year over year was 15 percent to $244.8 million. Regions such as Asia Pacific and Europe saw double-digit growth year over year.

Workforce Solutions saw sales up 6 percent year-on-year to $183.4 million, boosted by verification services, which gained 11 percent from last year to $126 million.

The latest filings from the company – in this case, a 10-K – reveal that “on November 27, 2017, Trans Union LLC and TransUnion Interactive, Inc. filed a lawsuit in the U.S. District Court for the Northern District of Illinois against Equifax Information Services LLC, Equifax Inc. and Equifax Consumer Services LLC f/k/a Equifax Consumer Services, Inc.”

Though there is no dollar amount placed on damages being sought, Equifax noted in the filing that “TransUnion seeks declaratory relief, breach of contract and anticipatory repudiation of contract based on our Reciprocal Data Supply Agreement.”

That agreement, according to the 10-K, put forth the pricing terms for credit monitoring supplied by the parties to one another.

Equifax said that on January 26, 2018, the company moved to dismiss TransUnion’s claims, and discovery in the case has been stayed until a ruling on that motion is issued.

“We dispute the allegations by TransUnion and intend to defend against its claims,” the 10-K said.

And amid all that, the breach is getting, well, expensive. Executives said during the Friday call that costs tied the the breach will be up by roughly $275 million in 2018. The tally thus far from the back end of 2017 was $164 million. Add it up, and the total comes to about $439 million. The costs span technology upgrades, and the costs of providing credit monitoring services to consumers. And legal fees.